OpenSea’s former product manager was indicted by the US Justice Department for wire fraud and money laundering. He allegedly made a significant profit by using confidential business information to determine which NFT projects would be on the platform. Officially, this was the first ever digital asset insider trading scheme.
Insider Trading: Accused
The defendant – 31-year-old Nathaniel Chastain – was accused of secretly buying 45 NFTs in advance of them being featured on OpenSea’s homepage from June to September 2021, as reported by Reuters. On Wednesday, the man was arrested and charged with one count each of wire fraud or money laundering. Each of these charges can result in a maximum sentence of 20 year imprisonment.
According to the official release, Chastain’s responsibilities with OpenSea included “selecting NFTs to be featured on OpenSea’s homepage.”
With pre-advance knowledge of which ones would be launched on the site – usually leading to an increasing volume and surging prices – Chastain first bought the NFTs and then sold them immediately after they were listed on the platform “at profits of two- to five-times his initial purchase price.”
According to the release, the man used anonymous digital currency wallets and OpenSea accounts to conceal the fraud.
FBI Assistant Director-in-Charge Michael J. Driscoll considered Chastain’s offense an age-old insider trading scheme and added that the authority would continue deploying forces to target acts of market manipulation in the digital assets space.
“With the emergence of any new investment tool, such as blockchain-supported non-fungible tokens, there are those who will exploit vulnerabilities for their own gain. The FBI will continue to aggressively pursue actors who choose to manipulate the market in this way.”
Authorities focus on NFT-related Crimes
With the rising popularity of NFTs, an increasing number of crimes in the field – like rug pulls and insider trading – caught the attention of authorities worldwide.
Two NFT rug-pullers were charged by the US Justice Department with conspiracy to commit wire fraud, money laundering and the scheme that cost Frosties a million dollars. According to reports, the men had allegedly stolen a total amount of 356.56 ETH.
Three NFTs worth approximately $6,700 were seized by the UK’s tax authorities HM Revenue and Customs (HMRC), a month prior to the start of an investigation into a $1.9million financial scheme. The crackdown was the agency’s first confiscation of non-fungible tokens.